Walt Disney Co (NYSE: DIS) is trading slightly up on Tuesday after a Wells Fargo analyst issued a bullish note in favour of the entertainment and media conglomerate.
Disney shares could rally on an ESPN spin-off
Steve Cahall recommends buying Disney shares at current levels and sees upside in the stock to $125 – about a 45% price increase from here.
He’s bullish because he’s convinced that the Walt Disney Co will spin-off ESPN and ABC by late 2023.
Disney is a franchise IP company with a monetisation flywheel. Sports is a distribution business where value accrues to leagues. There’s very little reason for Disney and ESPN to remain together given evolution of media consumption.
Earlier this year, activist investor Dan Loeb had also pushed for Disney to spin-off ESPN, arguing the latter will have more flexibility to expand in the likes of sports betting if it weren’t a part of Disney.
Cahall is betting on the return of Bob Iger as CEO
Now that Bob Iger is back at the helm, Cahall even expects the mass media company to consider selling its stake in Hulu to improve its balance sheet.
According to the Wells Fargo analyst, spinning off ESPN will see the remaining Disney trading at an enterprise value-to-EBITDA multiple of 16 times. His note reads:
Recall that Iger built Disney into what it is today: a franchise [intellectual property] leader with global scale. ESPN, traditionally the cash cow, is neither owned-IP nor global the way the rest of Disney is.
Another notable bull on Disney shares, as Invezz reported here, is Jim Cramer. For the year, this stock is down about 45% at writing.
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